Wes has been an orthopedic surgeon in Atlanta for 15 years. He would like to devote less time to his medical practice, spend more time with his family, and pay less income tax. His net income from his medical practice has been about $500,000 per year for the past five years.

Wes grew up on a dairy farm in southeastern Georgia. He has many fond memories of his childhood and believes a farm would be an excellent environment for his three children. Consequently, he purchases a dairy farm about 30 miles from Atlanta.

He hires two full-time employees to handle the milking operations and other part-time employees as needed. In addition, Wes and his family participate in performing various activities on the farm.

Wes commutes to Atlanta four days a week to continue his medical practice. Because he is devoting less time to the practice, his net income decreases to $400,000. Wes has a loss of $75,000 for the dairy farm that he attributes to depressed milk prices and his inexperience at running the farm. He considers the medical practice and the dairy farm to be separate trades or businesses. Therefore, on the Federal income tax return, the $75,000 net loss is offset against the $400,000 net income. Assume that the net income and net loss from the medical practice and the dairy farm, respectively, remain approximately the same for the next four years. Is the position adopted by Wes defensible? Discuss.